The document outlines various factors in the business environment including political, legal, social, technological, and competitive forces. It discusses analyzing the environment using tools like PEST and Porter's five forces model. Various legislation protecting employment, data, health and safety, and consumers are also covered.

1. Chapter 2
THE BUSINESS ENVIRONMENT

2. TOPICS
1. Analysing the business environment
2. The political and legal environment
3. Employment protection
4. Data protection and security
5. Health and safety
6. Consumer protection
7. Social and demographic trends
8. The impact of technology on organisations
9. Environmental factors
10. Competitive forces
11. Converting resources: the value chain
12. Competitive advantages – Porter’s five forces models

3. Analysing the business environment – PEST tool
• The environment is everything that surrounds an organisation, physically
and socially.
• Environmental analysis is one of the inputs to the strategy-making
process.
• PEST (Politics, Economy, Society, Technology) is a useful tool to employ as
an initial survey of conditions and options.

4. Analysing the business environment – Degree of
environment uncertainty

5. Drivers of changes in environment
• Globalisation of business
• Science and technology developments
• Mergers, acquisitions and strategic alliances
• Changing customer value and behavior
• Increase scrutiny of business by government and the public
• Increase liberlisation of trade, and deregulation and co-operation
• Changes in business practices: downsizing, outsourcing and re-engineering
• Changes in the social and business relationships between the company
and its stakeholders

6. Political and legal environment
Factor Example
General legal framework:
contract, tort, agency
Basic ways of doing business, negligence proceedings
Criminal law Theft (eg of documents in Lanica's failed bid for the Co-op), insider dealing,
bribery, deception
Company law Directors and their duties, reporting requirements, takeover proceedings,
shareholders' rights, insolvency
Employment law Trade Union recognition, Social Chapter provisions, minimum wage, unfair
dismissal, redundancy, maternity, Equal Opportunities
Health and Safety Fire precautions, safety procedures
Data protection Use of information about employees and customers
Marketing and sales Laws to protect consumers (eg refunds and replacement, 'cooling off‘ period after
credit agreements), what is or isn't allowed in advertising
Environment Pollution control, waste disposal
Tax law Corporation tax payment, Collection of income tax (PAYE) and National Insurance
contributions, sales tax (VAT)

7. Government and business
Capacity expansion
Demand
Divestment and rationalisation
Emerging industries
Entry barriers
Competition
Impact of government on business
Lobbying
Non-executive directorship given
to Member of Parliament
Influencing public opinion
Influence of business on
government

8. Political risk
• Political risk is the risk that political factors will invalidate the
strategy and perhaps damage the firm.
Examples: wars, political chaos, corruption, etc.
• Political changes at either national or international level, may
complicate the planning activity of the firm.
• International trade: is governed by an extra layer of legislation in
treaties and agreements and is potentially subject to a higher level
of political risk.
• The European Union (EU): operates a single European market,
allowing for the free movement of labour, goods and service, and
free competition.
• The World Trade Organisation (WTO) was set up to promote free
trade and resole dispute between trading partners.

9. Legislation and protection
• Employment protection
• Data protection and security
• Health and safety
• Consumer protection

10. Legislation and protection – employment
protection
• All forms of termination of employment must be treated with great care!
• Retirement. Organisations encourage retirement for a number of reasons:
– A result of corporate downsizing
– Promotion of opportunities for younger workers
– Early retirement is an alternative to redundancy
– The age structure of an organisation may be unbalanced
– The cost of providing pensions rises with age
• Resignation. Employees resign for many reasons. Exit interview should be
taken. The period of notice should be set out in the contract of
employment.
• Dismissal has three main forms under UK law:
– The termination of contract by the employer
– The ending of a fixed term contract without renewal on the same term
– Resignation by the employee where the employer’s conduct breaches the
contract of employment. This is constructive dismissal.

11. Legislation and protection – employment protection
• Dismissal can be wrongful dismissal or unfair dismissal.
– Wrongful dismissal is dismissal that breaches the contract of employment. It
relates to method of dismissal.
– Unfair dismissal is “dismissal without good reason”. Any dismissal is potentially
unfair. The employer has to prove that the dismissal was fair.
• The use of a disciplinary system can be evidence in certain situations that
an employee has not been dismissed unfairly.
• Redundancy (or layoff): is dismissal under two circumstances:
– The employer has ceased to carry on the business
– The requirements of the business for employees to carry out work of a
particular kind have ceased or diminished or are expected to.
• Compensation is a legal entitlement, and encourages employees to accept
redundancy without damage to industrial relations.

12. Legislation and protection –
Data protection and security
• Privacy is the right of the individual not to suffer unauthorised
disclosure of information.
• Why privacy an important issue?
– Information about an individual could be misused.
– Computerised data could be inaccurate or misleading and transferred
to unauthorised third party at high speed and little cost.
• Data Protection Act 1998: to protect data about individual, not
about the corporate!
– Personal data is information about a living individual, including
expressions of opinion about him or her.
– Data users are organisations or individuals who control personal data
and the use of personal data.
– Data subject is an individual who is the subject of personal data.

13. Legislation and protection –
Data protection principles
1. Personal data shall be processed fairly and lawfully
2. Obtained only for specified and lawful purposes
3. Adequate, relevant and not excessive
4. Accurate and up-to-date
5. Not kept for longer than necessary
6. Processed in accordance with the rights of data subjects
7. Appropriate measures shall be taken against unauthorised
use
8. Shall not be transferred to a country where data
protection rights are not upheld

14. Legislation and protection –
Health and safety
• Why health and safety important?
– An employer has legal obligations under the UK and EU law
– Accidents and illness cost the employer money
– The company’s image may suffer.
All workplace must be safe
Environment must be safe
Plant/machinery maintained
Training
Communication of policies
Risk assessments and controls
Share information
Identify those most at risk
Employ competent advisor
Employer duties
Take reasonable care
Allow employer to carry out
duties
Not interfere with machinery
Inform employer of dangers
Use all equipment properly
Employee duties

15. Legislation and protection –
Consumer protection
• A contract is a legally binding agreement. It does not have to be
written, or even does not have to be spoken.
• Sales of goods and services - Implied terms
– The effect of of performance
– Title, or the seller’s right to sell the goods
– Description of the goods
– Quality of the goods
– Fitness of the goods for the purpose for which they are supplied
– Sale by sample

16. Social and demographic trends
• Social and demographic trends can have an impact on the labour market
(human resources), and buying patterns (sales and marketing) of the
company.
• Population and the labour market
– Growing population offers a large labour market
– The change of age structure of the labour force
– Increasing the participation of women
• Family life cyle (FCL)
– The combination of effects of age, marital status, career status, the presence or absence
of children.
– Various stages through which households progress.
• Social structures and class
– A class is more than a group of people with various things in common. Classes fit into a
social structure, in which some classes have advantage over others.
• Social economic status. It is not simple to compare people’s income.

17. Social and demographic trends (cont’d)
• Health and diet issues: an increase of vegetarianism and “green
consumerism”. Impact of health and diet on businesses:
– Growing market for sport-related goods
– Employee health
– New food
– New sorts of convenience food
– Organic foods
• Women in work
• Environmentalism
• Response of business on these trends:
– Green products
– Changed practices
– Limits
– Education and confusion
– Environmental impact assessment

18. The impact of technology
• Impacts on organisation structure:
– Span of control: refers to the number of subordinates responsible to a superior.
– Delayering: is a trend due to the improvement of management information system.
– Tall and flat organisation.
– Centralisation and decentralisation
• Other impacts:
– Routine processing is quicker
– Digital information are easily sorted
– Employee skills base changing
– Technological changes
– Customer services enhanced
– Information as a ‘commodity’
– Development in communications: email, voicemail, video-confering
– IT and employee/employer relationship
– Homeworking and supervision
– Outsourcing

19. The impact of technology - Outsourcing
• Outsourcing is contracting out of specific operations or services to an
external vendor.
• Types of outsourcing:
– Ad hoc: short-term requirements to meet increase demand in IS/IT skills
– Project management: outsourcing for a particular project
– Partial outsourcing: some parts of the IS/IT services are outsourced.
– Total outsourcing: a vast majority of an organisation’s IS/IT services are
outsourced
Remove uncertainty of costs and
enhance economies of scales
Encourage planning
Skills and knowledge: retain and
sharing
 Flexibility
Advantages
Matter of competitive advantages
Confidentiality matter
Unawareness of potential costs and
benefits of IS/IT
Unsatisfactory outsourcing contract
Disadvantages

20. Environmental factors
Environmental footprint is the impact
that a business’s activities have upon
the environment including its resource
environment and pollution emissions.
E.g. Depletion of natural resources,
noise and aesthetic impacts, residual air
and water emissions, long-term waste
disposal, uncompensated health effects,
change in the local quality of life, etc.
Impact economic activities on
environment
Direct: waste management,
remediation costs or expenses,
compliance costs, environment
R&D, training, maintenance, legal
costs and fees, etc.
Indirect: uncertain future
remediation or compensation costs,
risks of future changes in regulatory,
sustainable raw materials input,
public/customer perception, etc.
Impact of environment costs on
organisation

21. Competitive forces – SWOT analysis
Areas of strengths a business which
should be exploited
Areas of weaknesses which should
be improved
STRENGTHS WEAKNESSES
What opportunities exist?
What is their profit-making potential?
Can the organisation exploit the
opportunities?
What is the comparative capability
profile of the company and its
competitors?
What threats might arise?
How the company and its competitors
be affected?
OPPORTUNITIES THREATS
Internal
factors
External
factors

22. Porter’s value chain
• Value activities: are the means by which a firm creates value
in its products.
• Primary activities: are involved in the production of goods
and services: production, sales, marketing, delivery and
service.
• Support activities: provide necessary assistance: purchased
inputs, human resources, technology and infrastructure
functions.
• Linkages: are the relationships between activities.
• Effective and efficient management of the value chain can
create competitive advantage.

23. Porter’s value chain

24. Porter’s value chain –
Activity comments
Activity Comments
Inbound logistics Receiving, handling and storing inputs: warehousing, inventory control, etc.
Operations Converting resource inputs (materials and labour) into a final products.
Outbound logistics Storing distributing products to customers: packaging, QC testing, delivery,
etc.
Marketing and
sales
Informing customers about the product, persuading them to buy, and
enabling them to do so: advertising, promotion, etc.
After sales
services
Installing products, repairing, upgrading, providing warranty services, etc.
Procurement Acquiring the resource inputs to the primary activities
Technology
development
Product design, improving of processes and/or resource utilisation
HR management Recruiting, training, developing and rewarding people
Firm infrastructure Planning, finance, quality control. These are crucially important!

25. Porter’s value chain –
The value network
• Activities and linkages that add value do not stop at the organisation's boundaries.
• An organisation’s value chain is connected to the value chains of suppliers,
distributors and customers in what may be referred to as a value network.

26. Competitive advantages – Porter’s five forces
models

27. Question 1
• BCD Co. is a large trading company. Steve is the administration manager and is also
responsible for legal and compliance functions. Sheila is responsible for after sales
service and has responsibility for ensuring that customers who have purchased
goods from BCD are fully satisfied. Sunny deals with suppliers and negotiates on
the price and quality of inventory. He is also responsible for identifying the most
appropriate suppliers of plant and machinery for the factory. Sam is the
information technology manager and is responsible for all information systems
within the company.
• According to Porter’s value chain, which of the managers is involved in a primary
activity as apposed to a support activity?
A. Steve
B. Sheila
C. Sunny
D. Sam

28. Question 2
• Under which component of PEST analysis would an
organisation analyse the media through which segments of
the youth market access new digital music products?
A. Political
B. Economic
C. Social
D. Technological

29. Question 3
• The bargaining power of customers in a industry will be
greater in which of the following circumstances?
A. There are one or two dominant suppliers in the industry
B. The product is highly important to the customer’s business
C. There are many customers in the industry
D. Switching costs are low

30. Question 4

31. Question 5

32. Question 6